Breach frustration and remedies notes PDF

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Contract – Breach, Frustration and RemediesFailure to carry out a promise = a breach.Contract liability is strict liability – no need to prove fault and no defence if it wasn’t the fault of the breaching party.Exceptions – may only undertake as an obligation under the contract to exercise reasonable...

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Contract – Breach, Frustration and Remedies Failure to carry out a promise = a breach. Contract liability is strict liability – no need to prove fault and no defence if it wasn’t the fault of the breaching party. Exceptions – may only undertake as an obligation under the contract to exercise reasonable care or avoid fault then innocent party needs to prove fault eg lawyer/doctor is in normal practice contracting to exercise proper degree of professional care and skill. All breaches give rise to a claim for damages usually nominal unless can prove a substantial loss. Damages are a substitute for performance Different to claim to recover a debt – a liquidated/ fixed sum due under the contract, is much preferable as it is easier to recover as you don’t need to evidence loss – procedural advantages. Another remedy – termination of contract/ right to refuse to perform. Rescission for breach (different to misrep.) – concerned with performance and not the formation of the contract and so can rescind even if not to the pre-contract position and claim for damages (misrep puts you to pre-contract position). Repudiation – innocent party has the right to terminate as the breaching party has repudiated the contract and the innocent party has accepted this. Effects of Breach Depends on the significance of the term -

Conditions – terms that are central to the contract, breach entitles innocent party to reject the contract and decline further performance of the contract, essential promise Warranties – less important terms which give rise only to a claim of damages, subsidiary promise

Identifying is sometimes difficult, depends on the intentions of the parties at the time the contact was made and which they identified as the more important terms. Sometimes identified in contracts explicitly, already categorised by case law or in a statute.

Wallis Son & Wells v Pratt and Haynes [1911] A.C. 394 -

Sale of goods contract for the supply of seed, sellers give no warranty to the growth, description or any other matters, delivered a different kind of seed, which buyers accepted and sold on, believing it to be the kind they purchased, 3rd party claimed damages against them, so they sued the sellers - sale of goods act implies a term that the goods conform to the description.

Schuler (L) AG v. Wickman Machine Tool Sales Ltd. [1974] A.C. 235 -

Manufacturer gave company sole rights to sell, term stated that ‘it shall be a condition’ of the agreement that the company shall send representatives to visit the six largest manufactures every week to solicit orders for machinery, they failed to do this so it was breach and manufacturer of machinery terminated and company sued.

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Held by HL that even though it stated that it was a condition it shouldn’t be treated as one because it didn’t fit the description and shouldn’t give rise to a right to terminate.

No requirement of good faith, termination for breach when there is an ulterior reason?

Bettini v. Guy (1876) 1 Q.B.D. 183 -

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Contract to hire opera singer and promised not to sing in other venues for a period of time after contract ends without permission from company unless was more than 50 miles outside of London. He arrived too late for rehearsals for the show and company refused to employ him Was held to not be a serious enough breach to terminate.

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Poussard v Spiers and Pond (1876) 1 Q.B.D. 410 -

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Same type of contract as above, unable to attend rehearsals for performance and beginning performances because of illness so the company instead employed the understudy and when turns up after illness is turned away. Held that not being able to perform on opening night and early performances was held to go to the root of the matter and so there was no breach on the defendants’ behalf for termination.

Re Moore and Landauer’s Contract [1921] 2 K.B. 519 -

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Sale of goods contract, shipped in cases containing 30 tins each and payment was to be made per dozen tins, shipment contained the correct amount of tins but not all cases contained 30 tins, some contained 27. Breach of condition for sellers under s. 13 sale of goods act as 30 tins per case was part of the description and had breached this, so the innocent party was entitled to reject.

Modern cases have abandoned the distinguish and instead recognise intermediate and innominate terms – concentrates on the consequences of the breach, minor breach of an important term vs major breach of unimportant term, the former not necessarily entitling rescission and the latter may. An innominate term is the half-way position between a condition and a warranty – comes from the Hong Kong Fir Case (CA)

Hong Kong Fir Shipping v. Kawasaki Kishen Kaisha [1962] 2 Q.B. 26 -

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Charter party for 24 months for a fairly old ship, required skilled maintenance but didn’t have it which caused serious breakdowns and was off hire on several occasions for major repairs to engines. Terminated for breach from owners, then entered into a fresh charter party for the same ship When original contract was made the Suez canal was closed which meant prices were higher and when new contract made it was open so re-chartered at a much lower rate.

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CA held that the ‘seaworthyness’ of the ship was neither a condition or a warrenty but in between – innominate – as there are many ways which it could be breached and could be severe or minor, and so whether could terminate depended on the consequences and how it was broken. Held not entitled to terminate.

The Hansa Nord [1976] Q.B. 44 -

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Contract for sale of pellets, CIF contract so payment includes the insurance and the shipping of the goods as well as the goods themselves, small quantity of goods had deteriorated on the ship and in the mean time the market price had fallen, leading to the buyers rejecting the whole shipment. 1st instance said that entitled to reject as express term that the goods should be shipped in a good condition CA stated that this was an innominate term and so didn’t give immediate right to terminate, but it depends on the consequences and here only a small proportion affected, entitled to damages for this but not to reject all goods and terminate contract, held that they were still of ‘merchantable quality’ as s. 14 of the sale of goods act states.

Panama [1981] 1 W.L.R. 711 -

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Sale of goods, sellers had to give buyers notice when they were going to load the beans on chartered ship by certain deadline, sellers gave buyers notice late and so they terminate (potential economic purpose) HL said were entitled to impose strict performance of time obligations in this type of contract, was a fundamental term and so were entitled to terminate.

The Gregos [1994] 4 All E.R. 998 -

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Charterers in breach of charter party as had an obligation to redeliver ship by a certain date but were 8 days late – gave notice to ship owners that would be late as took a particular journey which would have meant they were on time if it had not been for a navigational error. HL said timely delivery was not a term which was always justified to terminate contract but in these circumstances it was – it was an innominate/intermediate term.

The Chikuma [1981] 1 All E.R. 652 -

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Late payment in a charter party, meant to be paid monthly in advance by cash, under contract had the right to withdraw the ship if the payment was late, charterers told bank to make payment a day before it was due and owners were credited but the money didn’t become available till several days later and owners held this as late payment HL said entitled to terminate even though it was only a short delay but was not the equivalent of cash and so were entitled to treat it as a breach.

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There was an express term dealing with the consequences of a breach so the courts will give rise to that.

Anticipatory Breach -

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When a party before the time of performance of contract does or says something that means can’t/isn’t going to complete their obligation under the contract Isn’t yet obliged to do anything but still a breach of contract (anticipatory breach) “innocent party” can accept breach and sue for damages OR affirm contract and sue for damages when there is a ‘proper’ breach at the time in which the party fails to fulfil obligations. Circumstances eg if that contract needed to compete 3rd party contract sues then and get another contractor VS eg market prices rising, sue later and may get more damages.

Hochster v. De La Tour (1853) 2 E & B 678 -

H was an interpreter and tourist guide to act for wealthy young men wishing to tour Europe. Contract on 12th April to start on 12th June Before 12th DLT indicated has changed mind and no longer wanted to employ H H issued writ immediately (22nd may) before June DLT argued this was premature, H couldn’t sue until 1st June – only then that there is a breach of contract Court held not premature, DLT had committed breach by indicating not going to perform contract and in these circs can sue for damages immediately if he wished Controversial but consistently followed – some think anticipatory breach is not a “real” breach.

Accepting the AB -

Can do so by bringing action for damages or giving notice of intention of accepting it and acing accordingly eg by buying goods elsewhere Mere inactivity is insufficient to constitute acceptance Party cannot accept breach for some aspects but pressing for performance of rest (general rule, may be some exceptions) May sue for damages immediately – refence to time when contract should have been performed and not when it was rejected General rules for assessment of damages apply and will have to mitigate losses (take reasonable steps to minimise loss) in the normal way such as making a substitute contract

Not accepting the AB -

Press for performance and then other party fails to perform, sue for damages in the normal way. Seems not under a duty to mitigate loss since duty to mitigate only arises when breach and there is no breach before contractual date for performance so no duty to mitigate If affirms, not obliged to minimise loses until stage of actual breach at the due time

White and Carter (Councils) Ltd. v. McGregor [1962] A.C. 413

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Scottish appeal to HL Assumed in the case scots law and English law are the same on this point Garage in west Glasgow, plaintiffs are “advertising contractors”, supplied rubbish bins to local authorities which they attached advertisements paid for by their customers D owned the garage and entered into contract to have ads displayed on bins for period of 3 years from date of making the contract, same day changed their mind and told plaintiffs to cancel contract D decided to perform contract and refused to accept repudiation of contract and for 3 years attached their ads to bins, at the end demanded the payment they were due under contract HL majority held they were entitled to do so because they affirmed the contract after being faced with the repudiation and weren’t obliged to mitigate losses as no breach till D’s failed to pay

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Subject to important qualification – “if a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden, with no benefit to himself,”

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Another exception is that innocent party can’t compel breach party to co-operate, will have to accept breach as terminating if cannot complete contract without them (unlike above case where could complete and breach was when there was no payment)

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Innocent party not allowed to sue if he has no legitimate interest in performing the contract rather than claiming damages. Several cases have dealt with this past White and carter

Hounslow LBC v. Twickenham Garden Developments Ltd. [1971] Ch. 233 -

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Concerned building contract between LBC and contractors. Dispute because there was a lengthy strike by people employed by contractors and contract became much delayed. Alleged by LBC as breach of term that required them to proceed “regularly and diligently” with the works. LBC terminated contract taking the view D’s were in breach. Contractors refused to accept repudiation and elected to proceed with work on the site. LBC refused them access to site and LBC applied for injunction to restrain contractors from entering site Court deciding whether there is a beach or threatened breach that justifies grant of injunction, not concerned about awarding damages Held that there was at least to be implied a negative obligation on the council not to revoke licence to be on premises except in accordance with the contract with itself whilst the period of the contract was still running. Not grant the injunction which would help LBC to break the contract. Arguable was an AB by late performance, not permitted injunction remedy to that would make performance impossible and force breach.

Isabella Shipowner SA v. Shagang Shipping Co. Ltd., The Aquafaith [2012] EWHC 1077; [2012] 2 Lloyd’s Rep. 61

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Charter party for ship chartered by plaintiffs to defendants the charters for 59-61 months. Charter included an express term by which charters promised not to redeliver ship before minimum period (59 mnths). Charterers said would redeliver before in an AB. Before actual redelivery owners started arbitration, proceedings seeking an award that they were entitled to refuse early redelivery and entitled to affirm charter party. Held to turn on the decision in White and Carter and whether this applied. Held that the owners did have legitimate interest on insisting on performance of the contract and so owners were entitled to affirm Similar facts to above = Clea Shipping Corp. v. Bulk Oil International Ltd., The Alaskan Trader [1984] 1 All E.R. 129

Innocent party may treat AB as reason for rescinding contract if breach amounts to a substantial failure to perform but not if announced breach was only of minor importance Eg if seller of goofs informed buyer that they were going to be one day late in delivery = minor importance but still breach. If time to perform delivery seller was still late, this could let buyers to reject goods – don’t have to accept late delivery

Innocent party given period of time to decide if affirm or terminate. Not immediate decision, reasonable time.

Stocznia Gdanska SA v. Latvian Shipping Co (No. 2) [2002] EWCA Civ 889; [2002] 2 Lloyd’s Rep.436 -

CA. complicated case about contract to build ships in Poland.

Frustration -

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Doctrine about the discharge of a contract When some event happens after the contract was made, it is either impossible to perform contract or circs have altered radically since it was made that to enforce contract wold require parties to do something radically different than what was contemplated when the contract was made Only an argument if event happens after contract is made – assumptions have been radically undermined by certain events vs where parties have made contract on a false assumption (before the contract is made) – dealt with by doctrine of mistake. Classic dilemma – doctrine of strict liability lead to that changes in circs should have no effect on enforceability. Party has assumed risk by terms of contract, should be liable despite changes but court is trying to enforce contract parties have made no other/different contract because of the changed circs. Complicated middle law

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Construction/ interpretation of contract is critical matter. English law favours strict liability in most circs – if undertake to do something and you don’t do it, even if reason is something unexpected, still liable. Frustration is limited exception - sometimes will hold contract has been discharged by reason on event occurring after making of the contract which radically effects the ability of the parties or one of them to perform the contract in accordance with the terms Common eg is charter party and outbreak of war – chartered ship has been sunk by enemy action. Common for court to say war and sinking of ship frustrates contract, charterer is not liable for not having ship to perform contract. Very narrow view of frustration Assumed that when a contract is made parties have assumed, expressly or impliedly, certain risks of non-performance and have adjusted affairs accordingly eg by consideration and to relieve party from effects on non-performance would undermine this importance policy of the law

History - Common law took extreme view of SL – no event after making of contract would be permitted to affect a discharge. Rule of absolute contracts

Paradine v. Jane (1647) Al. 26; 82 E.R. 897 -

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Landlord claiming rent of agricultural land, D tenant pleaded that he was unable to harvest crops form which he would pay the rent from because Prince Rupert’s cavaliers had charged across the field and ruined his crop Court held landlord still entitled to rent and is tenants bad luck, not for court to frustrate contract. position changed in Taylor v Caldwell

Taylor v. Caldwell (1863) 3 B. & S. 826 -

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accepted that a very extreme event affecting the performance of contract could bring about discharge contract was a hiring of building called the “surrey gardens and music hall” and was for 4 days in the summer of 1861. Before any of these days occurred, the building was destroyed by fire. Question was whether the hirers could sue owner for damages for breach of contract – had spent money in anticipation of hall being available and were unable to recover these expenses Court held plaintiffs were unable to sue for damages in these circumstances because the contract had been terminated (the word frustration was coined later) Quote on page 7 of handout – “not to be construed as a positive contract”, aka a contract where the SL rule would be applied without exception as in above case – explains result with the notion of an implied condition that the parties should be excused, another use of the word ‘condition’, when contract made sort of ‘if’ clause that the subject matter of the contract would exist.

Modern view to frustration

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Prev to 1943 implied condition precedent theory was widely adopted. Eg Krell v Henry Governed by statue – Law Reform (Frustrated Contracts) Act 1943 Test for frustration is to ask whether the performance of the contract in the present circs would involve a fundamental or radical change from the obligations originally undertaken. Axiomatic rule of law not relying upon an implied condition as above suggests.

Effect of frustration = to relieve both parties from having to perform the contract further, from the point at which the frustrating event happens. Any rights and liabilities prior will still remain binding.

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Very narrow in scope and doesn’t mean a contract is discharged by frustration merely because it has become onerous to one party – have made a very bad deal Requires drastic change in circs

Davis Contractors v. Fareham UDC [1956] A.C. 696 (H.L.) -

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Building contract. Contractors faced with unexpected and severe increase in costs, particularly labour costs, since made contract. Argued contract should be frustrated, but courts held that it was unfavourable but didn...